A Brighter Second Half?

After two months of correction, we’ve finally seen some rebound for the Malaysia stock market.

In the second week of July 2018, the Kuala Lumpur Composite Index (KLCI) had gone up for five consecutive days and closed at 1722, forming a beautiful bullish engulfing pattern for the weekly chart pattern; signaling that a rebound may continue. There are a few reasons that this happened, such as lower valuation surfacing after the recent overselling, rising oil price, more transparency with the new government’s reforms, and etc. In terms of technical view, Consumer and Technology are the only two segments that are in the bull market.

On the global scene, the trade war between the US and China had officially started on 6th July 2018, but both countries’ stock markets have shrugged off the significance of the newly implemented tariff. First, the Dow Jones Industrial (DJI) Index went up for a few consecutive days and stood at above 25000 at the closing of second week in July 2018, while the Nasdaq Composite Index has broken new highs. The Shanghai Composite Index, too, had gone up from its lowest at 2691 on 6th July 2018 and closed at 2831 on 13th July 2018. This divergence shows that the markets have somehow factored in the trade war scenario earlier.

Nevertheless, investors remain on edge for a potential retaliation from either side. Meanwhile, good economy data, such as low unemployment rate in the US, stronger US dollar and oil price, coupled with the start of the earnings season has seen a growing optimism in the market.

With the mix market expectations as abovementioned, are we seeing a brighter second half? Let’s look at our portfolio’s performance.

The companies or strategies mentioned in this article are meant for study purpose only. It doesn’t constitute any ‘buy’ or ‘sell’ recommendation. Please consult your financial professional if you want to make any decision.

As we can see, the portfolio has showed a gain of 195% since November 2015. In June 2018, we have seen Comfort (2127) and Jaycorp (7152)’s quarter results. After reading their report, we have decided to sell Jaycorp and hold Comfort.

Sold JAYCORP (7152)
Jaycorp’s revenue has fallen for the last two quarters, with its latest quarter earnings turning negative. According to its quarter report, this is due to a ‘decrease in demand from the overseas market and the strengthening of the Malaysian Ringgit (MYR) against the United States Dollar (USD)’.
I felt the reason given is too little to justify the losses, and it does not give any hint if the trend would continue or provide clear earning visibility. With very limited information available, we sold 40000 shares of Jaycorp at 0.825. The losses incurred in the sales were RM25800, as our entry price was RM1.47.

Hold COMFORT (2127)
Comfort’s 1QFY19 net profit fell at 27.6% YoY to 7.3 million, although its revenue is higher compared to the previous year’s corresponding quarter. According to its quarter report, the group made a tax provision of 2.3 million, which was not provided in 1QFY18. In addition, the higher raw nitrile price and natural gas price, plus the strengthening of the Ringgit against the USD have weighted on its earnings.

Nonetheless, its revenue shows stability and its earning is better than the last quarter by 54%, due to the deferred taxation of RM5.2 million provided in the previous quarter. Overall, Comfort’s long-term prospects remain intact due to:

Future expansion plans to include eight new production lines and a warehouse

Strengthening Greenback

Resilient global demand for rubber gloves

Seen as a laggard for much lower PE of around 15 compared to other big players like Topglove, Harta and Kossan

With the sales proceed of RM33000 from Jaycorp, and RM2400 dividend received from Heveaboard plus with the cash brought forward, our new cash level is at RM54525.

So, back to the question – are we seeing a brighter second half? With all the dramas that we’ve experienced globally and locally in the first half this year, politically or economically, plus the receded uncertainties lately, I have started seeing the incipient light of the day.